Abstract

Excerpted From: Carlos Portugal Gouvêa, Race and Corporate Governance in Brazilian Public Companies, 57 International Lawyer 61 (2024) (110 Footnotes) (Full Document)

The hypothesis of this paper is that the corporate governance of Brazilian public companies reinforces the patriarchal and racist characteristics of the country's social structure. These traits have been deeply embedded in the social fabric since the country's transition from a nineteenth-century slavery economy to a modern one. Such historical link lies in a series of laws enacted in 1850 to reform public and private law in preparation for the end of slavery, namely, the Eusébio de Queiroz Law, the Land Registration Law, and the Commercial Code of 1850. The resulting legal regime led to a caste system not based on legally enforced segregation, as seen in the United States of America until the eruption of the Civil Rights Movement or in South Africa during apartheid. In contrast, the segregation regime in Brazil was much more subtle. It mainly used private law, in general, and the control of large companies, in particular, to consolidate a lasting system of economic and racial segregation.

To test our hypothesis, we developed a method to identify the skin color or race of executive and financial directors and members of the board of directors of Brazilian public companies. This research was based on a survey sent to all the publicly traded companies in the Brazilian securities market, presenting specific questions regarding the diversity of their board and senior management. Our research showed that all the executive directors of Brazilian public companies who answered the questionnaire were white, although over half of the total Brazilian population is black. The results obtained based on our methodology also proved to be statistically relevant. Bluntly put, the best-paying jobs in Brazil are closed off to black people, which lays one of the foundations for a caste-based society. Such characteristics may explain the persistence of economic inequality in Brazil and the instability of democratic institutions. In this sense, this article also asks, reviewing the literature on racism and class structure as pillars of economic inequality and democratic instability, whether these findings regarding Brazilian society support universal claims to deal with the growing threat posed by racism to democratic regimes across the world.

During the survey period between January and May 2021, we obtained detailed responses from approximately fifteen percent of the total sample. In order to test the statistical significance of the results, we applied an evaluative test to board members and senior managers of all other publicly held companies, using the same methodology as the one applied to identify fraudulent enrollment in affirmative action programs at Brazilian universities. This analysis was based on the method of heteroidentification through the phenotypic characteristics of the surveyed people. This was carried out mostly from materials sourced online. The data was subsequently submitted for validation by the companies themselves, ensuring the predominance of self-declaratory categorization of those surveyed. This method is similar to the one deployed by the Brazilian Institute of Geography and Statistics (IBGE), in which the data are based on self-declaration. Such a comparison of samples showed statistically robust results and disconcerting conclusions. We identified that zero percent of the board member positions surveyed were occupied by people who identify as black, and only 1.05 percent of such positions were occupied by people who identify as brown (pessoas pardas). When expressed mathematically, the results demonstrate that white people are fifty-eight times more likely to occupy the best-paying jobs in Brazil than non-whites.

Drawing from Gunnar Myrdal's pioneering study on patterns of discrimination in the United States of America (U.S.) during the racial segregation period, we observed that certain characteristics of Brazilian society--revealed by access to the best-paying positions in Brazil, in the country's largest companies--support the understanding that a caste system similar to the one Myrdal described for the U.S. exists in Brazil The survey confirms that the corporate governance of Brazilian public companies follow a “clan” regime, marked by a tendency to favor appointments to the board of directors and executive and financial directors positions based on hereditary criteria and excluding women and black people from leadership positions and higher-paying jobs. Such findings provide a firm grounding for the assertion that the Brazilian corporate governance model is predominantly patriarchal.

To make the transition to a truly democratic society possible, such positions must be open to all, regardless of gender or race. Thus, the adoption of a public policy for mandatory affirmative action in Brazilian public companies would be commendable in order to effectively make these positions available to individuals from underrepresented communities. Finally, we hope that this study might instigate further research in partnership with academics from other jurisdictions and encourage them to undergo a comparative analysis of the application of our methodology and the creation of an international database on the topic of corporate governance and racial diversity.

This paper is divided into three main parts. First, we revisit the contemporary literature on the relationship between corporate governance and diversity while paying close attention to race. Subsequently, we present in greater detail the methodology and results of our survey of racial diversity in Brazilian public companies. This debate will be complemented by a reflection on whether the research results reinforce the patriarchal model identified by the scholars considered classic references in the field who have focused on the roots of social inequality in Brazil.

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Nowadays, there is a clear demand from society for companies to take an active role in social transformation beyond just their contribution to the economic activity in which they are specialized. Such a demand goes beyond the mere regulation of negative externalities, corporate social responsibility or philanthropy. It is a demand for an ideological engagement with social issues, so that investors, workers and consumers only want to have a relationship with companies that present some kind of identity with their personal values. Such a demand places corporate ethics as the main issue of corporate governance in the 21st century, requiring empathic behavior from companies, especially in terms of human rights.

In the Brazilian case, following the logic identified by Myrdal as the basis for discriminatory conduct, a static view of the model would lead us to believe that companies do not have black people in senior management due, for example, to the country's educational problems. But the cyclical model proposed by Myrdal would lead us to identify that it is public companies failure to hire black people for senior management that leads to the perpetuation of a discriminatory educational regime. Because the example set by the large companies ends up being socially reproduced, other economic agents to emulate such behavior and also fail to hire black people for high-paying positions. This practice is repeated all the way to the social base, in which black families fail to invest in the education of their daughters and sons with the purpose that they come to occupy leadership positions in the business world, because they believe that such positions are closed to people who do not belong to a particular race. White families, on the other hand, disproportionately invest in the education of their children to occupy such positions, causing untalented people to ascend to a position of leadership based on inherited cultural privileges. As a result, a deep and vicious cycle is formed, from which, without structural remedies to combat discrimination and social inequality, it is difficult to break free.

Without efforts such as those proposed here, of structural reform of corporate governance through the insertion of black people in the top management of public companies, we will have the preservation, in the Brazilian case, of a model of corporate governance that is not only patrimonial in its structure, but that it is constantly flirting with the shifting of its control towards a dogmatic totalitarian regime. In a regime like this, the legal instruments of diffuse control would lose all their effectiveness, preventing the development of the economic system itself, keeping society at a level of permanent low development, as experienced in recent decades in Brazil. Therefore, failing in such a project will inexorably represent a profound distancing of Brazilian companies from the reality of their competitors in the central countries of capitalism, with the immanent risk of increasing international and domestic social inequality to the detriment of Brazilian society.

Assistant Professor of Law at the University of São Paulo Law School; William D. Zabel Visiting Professor in Human Rights at Harvard Law School, fall 2022; Livre Docente, University of São Paulo Law School, 2022; S.J.D., Harvard Law School, 2008.